The Keynesian Approach

The Keynesian Approach

Before John Maynard Keynes, studies in economics were based on Adam Smith's idea of free market economies. Adam Smith proposed that government should not interfere in the free market in his An Inquiry into the Nature and Causes of the Wealth of Nations, which he published in 1776. He believed that the invisible hand of an open market economy would maintain the equilibrium balance between goods supplied and demanded. Each individual trying to maximize his own benefits would produce the best outcome for the community.

Keynes believed that the government should strive to help control inflation and unemployment through monetary policies aimed at stabilizing the economy during booms, recessions, and depressions. He helped to invent what we know today as Macroeconomics by encouraging economics to view Macroeconomic policies differently at their aggregate level than their Microeconomic counterparts.